Executive Summary

• Senator Klobuchar recently reintroduced the bipartisan American Innovation and Choice Online Act (AICOA), a major antitrust bill designed to target self-preferencing by large technology firms.
• AICOA’s prohibitions against self-preferencing largely resemble similar European Union legislation known as the Digital Markets Act (DMA), which has already begun to limit the deployment of new services in Europe – such as Meta’s new application, Threads — despite not yet having gone into effect.
• As Congress considers AICOA, it should seriously consider the DMA’s effects on businesses and competition in the EU, as its focus on competitors will likely harm the consumers these laws are intended to protect.

Introduction

Senator Klobuchar (D-MN) recently reintroduced the American Innovation and Choice Online Act (AICOA), a major piece of antitrust legislation designed to prevent large technology firms from self-preferencing their products and services. For example, if a firm owns an application store and offers applications through that store, AICOA would prevent the firm from self-preferencing its applications offered on the store. Proponents of the bill see the prohibition against self-preferencing as a critical protection for competitors trying to access services controlled by rivals.

AICOA stems from a “big is bad” antitrust theory seen in similar regulations across the globe such as the European Union’s Digital Markets Act (DMA), which targets large technology firms and imposes similar bans on self-preferencing in Europe. Even though the regulation has yet to go into effect, companies such as Meta have already begun to limit services in the region out of fear that they could be in violation of its provisions. Most notably, when launching a new application to rival Twitter, Meta decided not to release its Threads app in Europe. As more companies similarly withhold new products from the EU, European consumers will be left with fewer choices.

As Congress considers AICOA, it should judge the merit of a firm’s practices by their effects on competition and consumers, not on whether individual firms or competitors may struggle to keep up or on the size of the most dominant players in isolation. AICOA, as currently drafted, would make many of the same mistakes as the DMA, and reproduce in the United States the same harms Europe has experienced.

American Innovation and Choice Online Act

The reintroduced version of AICOA largely tracks the version introduced in the last Congress. The bill would primarily target Meta, Google, Amazon, Apple, and Microsoft and address a wide array of practices related to some form of a firm self-preferencing their products or services in another line of business the firm controls. Specifically, AICOA would prohibit platforms from self-preferencing their products and services, limiting the ability of another business to compete, or discriminating in the application of the terms of service among similarly situated businesses. The bill would also impose restrictions on covered platforms’ ability to require interoperability — access for competing firms to the same platform, operating system, or features that are available to the covered platform — and restrict the ability of platforms to use non-public data to advantage their own products. Rather than protecting competition per se, the bill would protect small businesses trying to gain access to products and services owned or controlled by large firms.

In the last Congress, the Senate Judiciary Committee passed the bill with bipartisan support, although many members who supported the bill expressed concerns about its provisions. Even with heavy pressure from the primary sponsor, Senator Klobuchar, Senate leadership has not brought the bill up for a vote. Further, the bill has lost five cosponsors this Congress. Faced with courts largely unwilling to embrace the “big is bad” approach to antitrust policy, advocates of targeting concentration in technology markets may see AICOA as the last remaining vehicle for their ambitions.

The Digital Markets Act and What It May Mean for AICOA

As with previous versions of AICOA, many critics warn that the bill could threaten competition in technology markets. There are many procompetitive justifications for conduct that would be considered self-preferencing, and an outright ban could prevent firms from innovating and developing new products and services. While some of the concerns with AICOA are theoretical, the DMA could provide Congress with concrete data as it works through its own legislation.

The DMA regulations target digital “gatekeepers,” defined as companies with a market capitalization of more than $83 billion and at least 45 million monthly users, and cover many of the same firms as would AICOA. The DMA’s classification of “gatekeeper” comes with a wide array of restrictions on the behaviors of covered companies, such as sharing data between the core platforms and other services and self-preferencing of gatekeepers’ products over those of rivals, or removing policies that bar sideloading onto app stores. The specific regulations would also include some requirements regarding interoperability, notably targeting messaging apps, including Facebook Messenger and WhatsApp, according to recent reports.

While not a direct mirror of the AICOA, the DMA is supported by many of the same principles and legal theories. As a result, the DMA’s implementation and effects on innovation in the EU could shed light on how U.S. companies would respond to the implementation of AICOA.

For example, in July Meta launched a new application called Threads designed to directly compete with Twitter. Like Twitter, Threads allows users to follow people of their choice, and the application delivers a feed of posts both from the people the user follows and recommended posts from other users. The application comes in the wake of several changes to Twitter that many users disliked and provides an alternative platform without the same restrictions.

Notably, Meta chose not to introduce Threads in the EU, citing concerns with the DMA. This is a single but significant example of the DMA’s chilling effect on tech innovation and competition.

The Importance of Protecting Competition Rather Than Competitors

As the Threads case highlights, large technology firms constantly compete with one another in a variety of different markets. Competitive pressures from rival “big tech” firms make it difficult for any one firm to extract monopoly rents, as monopolistic behavior leaves the door open for rivals to innovate and offer competitive services. Yet proponents of bills such as AICOA tend to view antitrust policy solely through the lens of concentration rather than competition: Meta is a large company and therefore, they claim, can stifle competition from rivals. This analysis ignores that such concentration allows for investment in new products and services, often increasing competition as a whole with other large firms.

To the extent that a firm uses monopoly power to harm competition, current law can and does prohibit such behavior. For example, Section 2 of the Sherman Act prohibits firms with monopoly power in a given market from maintaining that monopoly (or even gaining it in the first place) through anticompetitive means. What’s more, courts often look at the competitive effects of the conduct in question when determining whether it is actually anticompetitive to ensure that consumers don’t lose out on the benefits of competition. Changing the law to target concentration alone runs the risk of stifling the very type of behavior regulators should seek to promote.

As Congress considers AICOA, it should pay close attention to how U.S. firms may weigh the added risk of violating the law when deciding whether to develop and offer new products and services. Indeed, such a bill may cut into the profits of large tech firms but do so at the cost of competition and innovative new products and services for American consumers. Further, Congress should carefully review the EU’s implementation of the DMA to understand how AICOA may affect competition in technology markets, as the legislation mandates restrictions on behavior similar to those of AICOA.